Thursday, May 14, 2015

The Developing Good News about the Humongous American Personal Debt Hole ... We've Stopped Digging

Accumulating debt is much like drinking too much alcohol. While it can be lots of fun during the 'doing' stage, the hangover payback period, albeit temporary, can often be quite painful.

And if you've been on or anywhere near Planet Earth the past several years, you know the debt hole we've dug is a really big one. That's the bad news.  The good news is that many Americans are now starting to change behaviors. That said, we'll be paying the hangover price accompanying our current condition of excessive personal indebtedness for a long time.

It won't be easy to get our debt levels under control as individuals, and it will take a long time, but the process has begun. And as the old saying goes, we can't finish what we don't start. Now if only the government gurus would start doing the same thing for our society as a whole. At least we can dream.

Americans' Debt Levels Remain Flat has the developing good news story about getting our personal indebtedness under control as well as the bad news story about the related debilitating impact on economic growth and job creation during that multi-year but vitally necessary process:

"Americans are playing it safe this year when it comes to borrowing, with overall debt levels largely flat in the first quarter amid tight mortgage lending and hints that some consumers are using gas savings to pay down bills.

In a sign of this caution, more U.S. consumers are getting a better grip on their finances, prompting a drop in late payments on two fast-growing types of debt—car and student loans.

Household debt—including mortgages, credit cards, auto loans and student loans—inched up 0.2% between January and March to $11.85 trillion, new figures from the Federal Reserve Bank of New York showed Tuesday. That was the smallest increase since the second quarter of last year, when debt levels declined outright.

A big factor behind the muted increase: Mortgage balances—which make up the bulk of U.S. households’ overall debt—were largely unchanged last quarter at $8.17 trillion. Mortgage debt outstanding is up just $6 billion over the past year. By contrast, in just the last quarter, auto-loan balances grew $13 billion to $968 billion, while student loans outstanding rose $32 billion to $1.19 trillion.

The numbers show that, despite making progress fixing their finances since the recession, Americans are still in a decidedly cautious phase and facing difficulties obtaining credit, especially consumers with tarnished borrowing histories and first-time home buyers.

Overall, borrowing remains weak, which could constrain spending and economic growth....
All told, U.S. households’ overall borrowing tab of $11.85 trillion remains about 6.5% below its 2008 peak of $12.68 trillion, even before adjusting for inflation. . . .

But the tepid growth in credit isn’t all bad for the economy. A combination of lower gas prices and consumer caution may be helping Americans improve their finances. While the cost of gas has risen recently, it’s still cheap: Nationally, a regular gallon of gasoline costs $2.69, according to the U.S. Energy Information Administration, down about $1 a gallon from a year ago. Instead of spending this windfall from gas savings, some consumers appear to be saving more or paying off debt to avoid problems.

Credit-card balances dropped $16 billion in the first quarter, to $684 billion, though much of that could be seasonal: Americans tend to pay off debt early in the year after splurging around the holidays.

But fewer Americans are falling behind on car and student loans, too. . . . Mortgage delinquencies improved as well."

Summing Up

For too many Americans, working to get this huge debt hole under control will take at least several years.

And during this payback period, the general economy and jobs will remain weaker than otherwise.

On the other hand, we will also be building a strong foundation for a lasting and lengthy period of economic prosperity and stability.

This debt hangover is a doozy, but the party lasted way too long, and it wasn't all that much fun either.

That's my take.

Thanks. Bob.

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